The Difference Between a 1099 and a W-2 Tax Form

If you’re a freelancer, small business owner, or employee, you're probably aware of Form W-2, Wage and Tax Statement, and 1099 forms, but do you understand their differences? Grasping the distinctions of each will save time and headaches, particularly when it comes to classification, as it determines:

• Tax withholding

• Social Security contributions

• Filing requirements

Use this blog to understand what each form means in 2026, who gets them, and how they affect your taxes. This way, you'll have clarity on the difference between W-2 and 1099 forms and which one applies to you.  

What Is a 1099 Tax Form?

A 1099 tax form is a way to document money that is sent or received by businesses and individuals. Small businesses can send this form to non-employees (contractors, freelancers, vendors) for services or work performed. As of 2026, most contractors receive Internal Revenue Service (IRS) Form 1099-NEC, Nonemployee Compensation, for payments over $600. Payment processors issue IRS Form 1099-K for totals over $20,000 and more than 200 transactions.

There are 16 types of 1099 forms, but most small business owners primarily deal with Form 1099-NEC, IRS Form 1099-MISC, Miscellaneous Information, and Form 1099-K. 1099 income is not taxed upfront, which means it's the responsibility of recipients to pay the 15.3% self-employment tax and income taxes when they file. 

Who Completes IRS Form 1099?

If you're a business owner who has worked with contractors who have met or exceeded the $600 payment threshold, it is your responsibility to obtain, complete, and distribute the proper Form 1099 to those workers. This form can be obtained from the IRS. 

Things to know about completing IRS Form 1099:

• File and furnish it to non-employees by January 31, 2026. 

• The IRS mandates e-filing if you're issuing 10 or more 1099s in a single year. 

• Penalties range from $60 to $310 per form for late filing. 

• You're not obligated to issue a 1099 for non-employee compensation below the $600 threshold.  

• You are not responsible for paying income tax on 1099 funds when you submit this documentation — that’s the contractor's responsibility. 

Tip: Always collect a W-9 form from contractors and verify this information before issuing payments. 

When Will You Receive a 1099?

For the 2025 tax year, you should receive your 1099 by January 31, 2026. Digital delivery is now the default for many payers, provided consent is given.

If you’re a contractor and haven’t received your 1099 by this deadline, take the following steps to obtain your form.

• Contact the payer by mid-February – Your first call should be to the business that issues your 1099. 

• Contact the IRS – If you don’t hear from the business before your income tax return is due, contact the IRS. The IRS will provide instructions for filing your income tax return and instructions for submitting your 1099 when you receive it. 

• You can still file using your records even if the form hasn’t arrived.

To issue a 1099 tax form as a small business, you will need to gather details from your contractor before the deadline.  If you are a contract worker, be aware of the tax issues that can cause trouble for 1099 workers. 

What Is a W-2 Tax Form?

Businesses issue W-2 tax forms to traditional employees who were paid $600 or more during a tax year. Employers typically pay employment taxes on behalf of W-2 employees, including at least three withholdings for income tax, Social Security taxes, and Medicare taxes.

For 2026: 

• Employers must file W-2s and W-3s electronically if they issue 10 or more forms.

• Forms must be furnished to employees by January 31.

Your W-2 lists:

• Your gross and net pay throughout the previous tax year 

• The amounts of federal income, Social Security, and Medicare taxes they paid on your behalf throughout the year

Like a 1099 form, you’ll use your W-2 to file your income tax return for the previous tax year. 

Who Completes a W-2 Tax Form?

While your employer will complete a W-2 tax form and send it to you, the information on your W-2 (and the taxes a business pays on your behalf throughout the year) will depend on critical information from your W-4 tax form. These withholdings aren't set in stone. You can now update your W-4 online through most payroll systems at any time during the year.

A W-4, or Employee’s Withholding Certificate, lists the amount of federal income tax you’d like withheld from your paycheck. Ultimately, it’s up to you to determine how much of your income you’d like to withhold for tax purposes:

• If you choose not to withhold any federal income tax (and you’re not exempt from paying income tax), you’ll owe the IRS your entire tax bill on the tax filing deadline. 

• If you withhold only a portion of your federal income tax, you’ll owe the IRS some of your taxes on the deadline but not your entire tax liability.

• If you withhold as much as or more than you owe the IRS in federal income taxes, you either won’t have to pay anything at year-end, or you’ll receive a federal income tax refund. This is the most common route for traditional employees. 

While you’ll likely fill out a W-4 when you're hired, you should also fill out a new W-4 if your tax situation changes. For example, if you change jobs or your family status changes in 2026, file a new W-4 to adjust your withholdings.

When Will You Receive a W-2?

Like 1099s, employers must send W-2s to their employees by the January 31, 2026, deadline. If you don’t receive your W-2 by the deadline, you should contact your employer or the IRS by mid-February.

Employers are now required to provide W-2s electronically unless you request a paper copy.

1099 vs. W-2: Similarities and Differences

1099 vs. W-2 2026: Review this helpful comparison table to understand significant differences and similarities between W-2 and 1099 forms. 

In short, when it comes to 1099 vs. w2, 1099 workers are self-employed and responsible for their own tax obligations, while W-2 employees have their taxes handled by their employers. Salaried employees typically receive employment benefits from a single company, while freelancers work on their own schedule for multiple companies and don't usually receive employee-type benefits.

Why Worker Classification Matters in 2026

Small business worker classification is crucial for federal income tax purposes, as it determines which forms are applicable. It's essential to comply with applicable state and federal laws. Misclassifying employees and workers can lead to: 

• Back taxes

• Penalties

• Loss of benefits

Some workers are easier to classify than others, which is why several tests are available to help determine the appropriate status, including these three categories. 

• Behavioral control. This determines whether the business has the right to direct and control the work that is accomplished and how the worker performs the job. Employees typically receive more direction with working hours, while contractors tend to have more autonomy and set their own hours. 

• Financial control. This determines whether the business has the right to direct or control the financial and business aspects of the worker's job. The more control and investment in a worker typically indicates they're a W-2 employee, while freelancers invest in their own materials and have their own expenses and other costs. They also have more opportunities for write-offs. 

• Relationship of the parties. This key aspect determines how the worker and the business perceive their relationship to each other. If the entire relationship seems to be indefinite, it may be an employee-employer scenario. A defined project or period would indicate contractor status.  

1099 employee vs. W-2 employee: Are you unsure whether your workers should be classified as W-2 or 1099? 1-800Accountant's experts can help you determine the correct classification.

Filing Your Taxes with IRS Forms 1099 and W-2

Should you use a 1099 or a W-2? You might receive one or both. If you receive both forms, combine them to calculate your total taxable income.

• W-2 income. Information from W-2s is generally entered in the “Income” section of IRS Form 1040, U.S. Individual Income Tax Return.

• 1099 income. Funds listed on 1099s are generally calculated in Schedule C (business) or Schedule 1 (other income).

Regular planning and bookkeeping help ensure accurate filing and tax deduction tracking. Tax credits, including the earned income tax credit and child tax credit, will help keep more of the wages paid to you.

File Your Taxes with Ease

Whether you’re an employee, freelancer, or small business owner, 1-800Accountant, America's leading virtual accounting firm, helps you file accurately while maximizing your tax savings. From W-2 withholdings to 1099 deductions, our experts simplify every step.

Talk to a tax expert today to learn how your designated accountant will handle even the most complex tax forms and situations. From easy-to-understand bookkeeping to affordable payroll to personal income tax preparation, we have you covered.